My understanding is the advantage of cast-iron wheels is complex forms can be made in a mould and then simply finished to size, a major time-saver. Apart from that cast-iron isn't ideal as a material for making wheels for the reasons Andrew listed. I'd also add cast-iron's well-known lubricating properties – good enough for a cheap bearing – which is likely to reduce its grip on a rail. Full size wheels are fitted with steel tyres.
Given a choice of making wheels from bar stock, I'd go for steel rather than cast-iron. I can't think of a good reason to fabricate wheels from cast-iron even in the most suitable grade. Aside from anything else it's filthy stuff to machine.
Part of the fun to be had in a workshop is learning what matters and what doesn't! Engineering books don't always help. Although there are occasions where materials have to be 'just so', for many amateur purposes whatever is most convenient can often be used. It's because the stresses and strains imposed on a model are likely to be less critical than on full-size, where for example, it can be vital to trade-off strength and weight to achieve high fuel-efficiency.
As Stewart Hart's PottyMill is far more forgiving than a performance model aircraft IC engine the trick is learning the art of compromise. I can confirm ill-educated bodging and slavishly trying to imitate engineering best-practice both lead to disappointment! For me the forum has proved to be an excellent source of practical advice.
Dave